This blog is used to post legal tips for businesses and consumers in California as well as commentaries on issues of interest to clients in the San Diego area. For information about our services, please contact us at (619) 448-2129. This publication is NOT INTENDED TO SERVE AS A SUBSTITUTE FOR LEGAL ADVICE. Please consult with a licensed attorney if you require legal advice. We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.

Friday, January 05, 2007

Credit Card Usage Prior to Bankruptcy

I strongly recommend to debtors that they should not use their credit cards during the 90 days prior to filing for bankruptcy, or longer if possible. Bankruptcy law allows a credit card company to object to you receiving a discharge of that debt if they can prove the debt was incurred fraudulently. Consumer debts owed to a single credit card company totaling more than $500 for luxury goods or services that were incurred within 90 days before the bankruptcy filing date are presumed to be fraudulent if the creditor files legal action to object to you receiving a discharge of these debts. The same presumption of fraud exists for cash advances totaling $750 or more during the 70 day period prior to the bankruptcy filing date.

Your right to receive a discharge could be vulnerable even if the purchases were made outside of the 90-day pre-filing period. The use of a credit card at a time when the debtor knew or should have known that he or she could not repay their debt can be considered as evidence that the debt was fraudulently occurred. Purchases made after retaining legal counsel would be particularly scrutinized.

I generally request 3 to 4 months of credit card statements for two reasons: (1) to verify the correct address to notify the creditor of the bankruptcy; and (2) to warn clients about potential problems. Most attorneys do not including the cost of defending clients against adversary proceedings filed by creditors in the basic fee agreement. The best policy is for the debtor to stop using any credit cards as part of the preparation for the filing of the bankruptcy.